§ Question again proposed, That the words proposed to be left out stand part of the Question.
§ 6.12 p.m.
§ Mr. Pavitt
I am grateful for the respite, because it has enabled my hon. Friend the Member for Stoke-on-Trent, Central (Dr. Stross) to inform me that, while my knowledge of the drug industry is not too bad, my arithmetic is shaky, because 2,400 representatives and 22,000 general practitioners means one in 10, not one in 100. That makes the case even more startling than the one I deployed.
On the question of promotion it is true, as an hon. Member opposite said, that there is a code. I have it here. It is a code on sales promotion of medical specialities in the United Kingdom. It is commendable that the industry has produced a code of this kind. It is interesting to see that last year there were 959 decisions on advertising copy and 232 on labels, etc., making a total of 1,191 cases adjudicated under the code, but there is no teeth in it. There is no question of sanctions or any suggestion of action arising. It is put forward loosely and no one knows whether in fact the code is effective.
On the voluntary price scheme, reorganised in January, 1961, I hope we shall hear in the winding-up speech whether it provides a criterion of prices which prevail abroad, whether it is the highest or the average price among a number of countries. I ask that because I am well aware that in certain circumstances where there are import licences in foreign countries the number of drugs going in may be extremely small and they may be in scarce supply. For this reason, there may be inflated prices, and a manufacturer may wish to use that as a means of making his voluntary price too high for the drug for the first three years after its inception.
The hon. Member for Dover (Mr. Arbuthnot) said that one of the ways of getting prices down was competition. My hon. Friend the Member for St. Pancras, North underlined that by Section 41 being used the Minister could 1555 consider if it is possible to have patented drugs manufactured under compulsory licences. If this were done, the Government could themselves go into competition with the drug houses. In view of the fact that we are such large consumers of the commodity, it might bring "a healthy breath of competition"—in the words of the hon. Member for Dover—if there were a drug house publicly owned and controlled and able to break some of the patents which at the moment make drugs so expensive, competing with private industry.
I should like to endorse every word which was said by my hon. Friend the Member for Stoke-on-Trent, Central about the problems of chemists having to stock about 3,000 items of different kinds. This makes it almost imperative to substitute from time to time. It seems to me reasonable, in view of the cost which the public has to pay, that there should be some narrowing of this range. There are far too many variants which are only slight variations on basic commodities in which therapeutically no great difference emerges.
I turn to two other points in the Reports of the Public Accounts Committee. I was concerned about the loss of £117,000 as a result of the way in which the Regulations on pay beds had been operated in teaching hospitals. The Regulations were issued in 1957, but it was not until the 1961 Report that we find that they have been inadequately understood and that, as a result, £117,000 has been lost to the taxpayer. It seems that there are two different rules, one of them for the teaching hospitals. I bow to no one in my respect for their work, and I say that particularly at this moment when my wife is recovering in one of them from a major operation, but it is time that we decided not to let the teaching hospitals have quite so much freedom with cash and thought a little more about the regional hospitals, which do such a vast amount of work and which should be raised to parity. I am not seeking to bring down the teaching hospitals but to raise the regional hospitals to provide the same type of service. In any case, there is no reason for losing £117,000 because of an inadequate understanding of Regulations put out five years ago.
1556 A comment has been made from a number of quarters on the stickiness of the drug manufacturers in negotiating. I hope that as a result of the Public Accounts Committee's Reports and this debate, the Minister of Health will start getting sticky and tough on these matters. Those hon. Members who lived through the heavy debates in 1961 know how tough the Minister of Health can be. We should like to see him using some of the same toughness in saving the taxpayer's money on the lines which the Public Accounts Committee has so thoroughly discussed and urged.
§ 6.18 p.m.
§ Sir Colin Thornton-Kemsley (North Angus and Mearns)
I had not wanted to follow hon. Members who have spoken about the section of the Report of the Public Accounts Committee—of which I am a member—which deals with drugs, and I wondered how I could make some reference to the speech of the hon. Member for Willesden, West (Mr. Pavitt) without an incursion into that subject. When he told us that his wife was in hospital, recovering from a major operation, I thought that at least I should sincerely—and, I am sure, on behalf of all hon. Members—wish her a speedy recovery.
I want to welcome the fact that the Government have followed at least two of the recommendations of the Public Accounts Committee in their current legislation. In our 1960–61 Report we investigated the effect of unduly low rents for local authority houses in Scotland upon the aggregate Exchequer Equalisation Grant. I remember standing here about a year ago and making a reference to that section of the Report. We recommended that housing deficits which were due to the charge of unduly low rents should be excluded from the calculations of Exchequer grants. I am sure that we were all glad to notice that the Government had decided to implement the sense of this recommendation in the Local Government (Financial Provisions) (Scotland) Bill, which is at present before the House, their solution being to base the grant not upon actual rent but upon the gross annual value of local authority houses as assessed for rating purposes, less a percentage deduction.
1557 The other respect in which the Government are at present implementing one of the Committee's recommendations—this time one of our current recommendations—is in relation to the abuse of the lime subsidy. The agricultural lime scheme provides that 65 per cent. of the cost of acquiring, carrying and spreading lime on farmland in order to improve the fertility of the soil should be reclaimed from the Government. There have been a number of cases of fraud arising from this scheme, very often involving collaboration between farmers and merchants. These include inflated weights and the delivery of substances which were not lime—in some cases gravel, in another case coal. In one case in Yorkshire, which was before the courts when the Public Accounts Committee discussed the matter, it was even alleged that whisky, cigars and gin had been supplied by merchants instead of lime.
In paragraph 74 the Committee expressed the strong hope thata vigorous and comprehensive procedure for verification of claims will be introduced at an early stage.The Government acted very quickly upon that. Section 5 of the Agriculture (Miscellaneous Provisions) Bill, which is before the House, gives power for the registration of merchants and the inspection of books. My right hon. Friend the Minister of Agriculture said on Second Reading,This arises directly out of an examination carried out by the Public Accounts Committee some while ago…"—(OFFICIAL REPORT, 21st November, 1962; Vol. 667, c. 1239.]My hon. Friend the Member for Dover (Mr. Arbuthnot), to whom so many hon. Members have rightly paid tribute for the quality and comprehensiveness of the speech with which he opened the debate, called attention to the wide scope of the work of the Public Accounts Committee. I have picked out for remark a few matters of comparatively minor importance, not so far referred to in debate, as an indication that the Committee are not concerned merely with the major matters. We do not have regard only, for example, to the fact that the estimated cost of the Blue Streak missile increased from £12.5 million to an eventual £60 million or even, as might be inferred from the number of hon. Members who have referred to it this afternoon, to the drug section of the 1558 Report. The Committee is always conscious of the fact, as we say in Scotland, thatIlka mickle mak's a mucklewhich I may interpret for the benefit of the uninitiated, "Look after the pennies and the pounds will look after themselves."
There was the story of the losses on an experimental farm. In 1947 or 1948—I forget which—the Ministry of Agriculture thought that it would be a good idea to conduct a large-scale experiment in mechanised farming in Anglesey and, having no funds themselves for this purpose, the Ministry succeeded in 'selling the idea to the Development Commission which, in turn, persuaded the Commission to authorise a grant of £113,700 from the Development Fund for the purchase at a premium of £11,000 of a 99-year lease of an estate of 1,200 acres at a rental of 20s. per acre per annum.
A company was formed to equip and farm the land, and it commenced its farming operations in May, 1951. Nine years later the losses had amounted to £54,000, excluding any provision for interest on capital, and the amount outstanding, including the initial capital cost and subsequent advances, was in excess of £200,000. It is true that a profit was made in 1961, before charging interest on the capital debt of £200,000, but after ten years the experiment has been recognised officially, after investigation by independent experts, to be a failure, the independent experts having drawn attention to the extravagant use of labour, excessive administrative expenses and over-capitalisation.
But haw to bring this unhappy experiment to an end? That is the question. It would be possible to sell back the equipment and the stock, but there would still remain the question of the disposal of the lease, for which so large a premium was paid. To further certain experiments which it was intended to carry out, buildings had been erected on the land of a character and to a scope which would have been far greater than would be required for normal farming operations, and the Committee were advised that there was very little hope of avoiding a substantial loss on the transaction. It seemed to the Committee that it might be better for the company to continue to farm the land on orthodox, 1559 as opposed to experimental, lines, with a view to reducing the losses, but the Ministry and the Development Commission have both decided that the time has came to cut the loss and to sell.
I mention this because to my mind the significance lies in the fact that the Ministry of Agriculture, who wanted to push the idea of an experimental farming project, were not only able to convince the Development Commission that the idea was good but were called upon by the Treasury to advise the commissioners whether it would be wise to sanction the advance. The Treasury witness told us in answer to Question No. 4720,This is a rather antiquated piece of machinery.This case has revealed the need for the Government to look carefully at both the statutory relationships between the Development Commission and the Treasury and the procedure by which the Ministry of Agriculture can virtually instigate a project of this kind, and then wash its hands of its administration.
From the Ministry of Agriculture I want to turn briefly to the allocation of catering contracts at certain Army establishments. In 1958 or 1959, the War Office decided to initiate an experiment in letting contracts for messing under an arrangement by which the caterers would take over the cookhouses, the ration stores, messes, and so on, and would themselves provide the food and the staff. For its part, the War Office would provide the fuel, the light and the accommodation.
The War Office invited competitive tenders on a daily per capita basis and, as a result, it let a tender at the Command Ordnance Depot at Didcot to a civilian caterer, and a similar contract at the Command Ordnance Depot, Donnington, to the N.A.A.F.I., on the basis of a provisional price to be adjusted in the light of the actual cost. As a result of the experiment, the Army Council decided that contract catering should be adopted as the normal practice in certain suitable static establishments in the United Kingdom, and two further contracts were placed by competitive tender with commercial firms, and two without competition with the N.A.A.F.I. In the event, the N.A.A.F.I. prices, in 1560 which no allowance was made for commercial profits, were appreciably higher than those of the commercial firms.
The practice of allocating half the contracts by tender to commercial firms, and half without tender to the N.A.A.F.I. was followed until 1960, when it became clear that the N.A.A.F.I. was consistently more expensive than the commercial firms. The War Office appears to be anxious—understandably so, I think—that the N.A.A.F.I. should retain a share of the contract catering trade in order to gain experience of it, and it wants to see more contracts allotted to the N.A.A.F.I. in order to give continued experience in this type of business.
In questions to a witness from the War Office, I ventured to suggest a way in which this might be done without loss to Army funds. As I hope that this matter may be pursued, perhaps I may be forgiven if I repeat the questions I asked—they are not very long—and the answers I received. I asked, in Questions Nos. 3475 and 3476:Where you have contracts on an ascertained cost basis, as you have with N.A.A.F.I., what incentive is there to economy?—Only the incentive of good management and this is one of the problems in this field. That is the only incentive. There is no external incentive in that their costs are being met. Of course, in this case the fact that their costs have worked out so high has forced us to adopt a different policy from the one we had originally conceived. It has lost them business.3476. No one has ever tried to work out a scheme under which, for example, if you can save 3d. a day on the contract price for messing, 1d. of that 3d. would go back to Army funds, 1d. to the troops in the way of better meals and 1d. to the contractor?—No, I cannot say that we have tried to devise a scheme like that.I still hope that an attempt on those lines may be made.
Before leaving the Army and N.A.A.F.I., I want to mention our investigations into the question of the Winter-berg leave centre in Germany, managed by N.A.A.F.I., which has been running at a loss, which, in 1960–61, amounted to £65,000—representing a subvention of about 28s. per visitor per day.
When, in 1955, the Treasury had approved the arrangements for overseas leave centres, it had stipulated that if any particular centre seemed to be uneconomic, consideration should be given to returning it to Army control, and to 1561 closing it down. This had not happened in this case, and the Committee found that only 6.6 per cent. of Service and civilian families in Germany were using the Winterberg centre, of which by far the greatest users were officers and their families, who outnumbered the other ranks and their families visiting that centre by nearly two to one.
In the light of these and other figures which it elicited, the Public Accounts Committee recommended that the War Office's intention to continue the centre in operation till April, 1964 should be reconsidered, and I have been glad to see from the Treasury Minute that, on our recommendation and that of the Treasury, supporting it, the War Office has decided to close this leave centre as soon as possible.
I pass over the astonishing story of the plaster that would not stick on the ceiling of a barrack block in, I think, Wiltshire, resulting in an additional payment of £122,500 by the War Office, since I want, in conclusion, to refer to the fees of consulting architects, engineers and quantity surveyors employed by regional boards on hospital contracts. In some cases, regional boards—which, in connection with the erection of new hospitals are able to place very substantial contracts, indeed—have negotiated a reduction in fees with the professional advisers, but both the Ministry of Health and the Department of Health for Scotland regard it as preferable—and in this I think that they are right—that negotiations should be conducted at the national level with the professional associations concerned rather than that local arrangements should be made.
The intention was, and the Committee recognised this, to try to find scales that would, on the one hand, make due allowance for repetitive work, and, on the other, provide for a tapering-off of fees on very large schemes—which is already provided for, I am told, in the case of quantity surveyors. This suggestion was welcomed by the Committee, and the Treasury Minute informs us that negotiations on fees are continuing. Though the Public Accounts Committee did not take cognisance of this fact, similar negotiations are going on with the officials of the Ministry of Public Building and Works and the Service Departments at 1562 what might be called chief quantity surveyor level.
No one wants to see the professional men, whose services are in great demand in private practice, as they are in the public service, browbeaten into accepting a scale of fees which is not remunerative and at which the best men will not be attracted to the professions concerned. There is a real need for agreement by all branches of government who are concerned in letting large building contracts, about the scale of fees they are justified in paying to outside practitioners, and I trust that agreement on all these matters, in which the ball is at present in the Government's court, may not long be delayed.
§ 6.40 p.m.
§ Mr. James Boyden (Bishop Auckland)
If the plaster contractors did not succeed in getting the plaster to stick to the roof of the barracks, I am sure that the Public Accounts Committee has succeeded in getting its criticisms to stick on the administration of all public Departments, and as a student for 30 years—at a very respectful distance—of the Committee, I should like to pay tribute to its efficiency and zeal. I regard its contribution to public administration as of the highest order, and I compliment my right hon. Friend the Member for Huyton (Mr. H. Wilson) the Chairman of the Committee, the hon. Member for Dover (Mr. Arbuthnot), and of course my hon. Friend the Member for Chesterfield (Sir G. Benson) who I think was probably on the Committee when I first began to study its Report, on the work they have done.
I want to follow the hon. Member for North Angus and Mearns (Sir C. Thornton-Kemsley) in reference to professional fees. I think that the Committee has uncovered a good deal of remissness in the Ministry of Health and, for that matter, in other Government Departments. I should have thought that it was as much in the interests of the architects, quantity surveyors, and civil engineers, to have reasonable fees for their work as it was in the public interest that these should not be excessive, and I agree with the hon. Gentleman when he hopes that all public departments will look into this and speedily get agreement with professional bodies.
I think that the Ministry of Health is particularly to blame. I think the very fact that architects and engineers could, 1563 as it were, have held the Department up to ransom should have put the Department on its guard and made it start negotiations a considerable time ago. To a considerable extent the pay pause of the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) has been responsible for a lot of inefficiency in the professional services of the hospital boards, not because of any lack of zeal or intelligence on the part of the board's officials, but because the boards have not been able to secure enough staff in their own offices and have had to put out to private architects and private civil engineers probably more than they would have wished to do.
I remember from my hospital board experience the days when salary negotiations in the public sector dragged on month after month and when the hospital boards wore losing architects and civil engineers and having great difficulty in filling vacancies. This reveals a considerable lack of planning and interest in the long-term building programmes of the hospitals. One can also point to the Government's lack of appreciation of the need for more professional people being trained in the universities and in colleges of advanced technology, and I think that the Ministry of Health particularly must carry a heavy responsibility for bad administration of those architects it had, that is, bad co-ordination between private architects and architects and engineers in the Department, and for an insufficient appreciation of the problem of long-term hospital planning.
A recent publication by The Builder draws attention to the lack of sufficient architects with knowledge and experience of hospital design. My hospital board in Newcastle has done a certain amount in this respect. It has run courses and held exhibitions in hospital design, but I am sure that throughout the country as a whole there is no question but that there is a shortage of architects and engineers familiar with the complicated needs of hospitals, and not enough is being done to see that those needs are being met.
I leave that and turn to an item which seems to merit considerable attention, namely, the purchase of the general anæsthetic fluothane about which the Committee made some very strong recommendations on page xxx. The Report reveals that one regional hospital 1564 board which was taking a considerable quantity of this anæsthetic tried to get a reduction in price from the monopoly manufacturers, I.C.I., and failed. But apparently the Ministry of Health knew nothing about the attempt to get a reduction in price, nor did it come to the notice of officials aft the Ministry until June, 1961.
This anæsthetic has been used in the hospital service in increasing quantities since 1957. In 1958 £146,000 worth was bought. In 1959 the figure rose to £335,000. In 1960 it reached over half a million pounds. In 1961 it approached three quarters of a million pounds, and it appears that the total expenditure this year will be more than that. It seems extraordinary that, although this item was being extensively used in the hospital service, no attempt had been made to negotiate a reasonable contract price with a monopoly, and well over £1,000,000 worth had been bought before the Ministry of Health took action.
When the Ministry began negotiations for a central contract incorporating a costing clause, it ran into difficulties with I.C.I. which refused, and as far as I know still refuses, to disclose its books and to agree to negotiate on the same basis as that adopted by other drug firms. Although the Ministry of Health, thanks to the prodding of the Public Accounts Committee, has secured a fairly substantial reduction in the cost, this reduction can be only a guess, because when the Chairman of the Committee questioned an official of the Ministry about this, the reply he received was:One has to take a view on this, Sir. We have not, of course, done so thorough an investigation of the I.C.I. costs as we have of some of the other cases. We have, on the other hand, secured a substantial reduction in price, and, as I say, we have also secured the promise of a further one to come. We consider that is about the best we can do for the moment.It seems to me that if I.C.I. in 1959, or indeed in 1958, could sell 33,000 litre bottles at £10 a bottle, it could, in 1961, by the sale of 70,000 bottles, have given the Health Service a greater reduction than it did and is doing.
This matter is still under discussion. We heard from my hon. Friend the 1565 Member for St. Pancras, North (Mr. K. Robinson) that there is no question of retrospection. I.C.I. is therefore almost certainly going to make a larger profit than the public interest demands, and I hope that when the Financial Secretary winds up the debate he will answer these points.
Have compulsory powers been taken to investigate the books of I.C.I. in relation to fluothane, and has this investigation revealed what sort of profits I.C.I. has been making in the past? Alternatively, is I.C.I. now agreeable to the costings clause being inserted in its contract for the supply of this anaesthetic? What other similar commodities are there in the hospital service? It seems to me that when the Public Accounts Committee probed this matter other items supplied on a fairly substantial basis might not have been investigated.
Finally, is it possible to introduce an element of competition, presumably not in England, but by importing quantities of this commodity from abroad? I understand that Halothane is manufactured in Frankfurt. It may be that Fluothane is a subsidiary of Halothane. [Interruption.] I understand that they are one and the same thing. Whatever the situation is, cannot a foreign tender be invited in order to bring about competition in tendering?
This situation is unsatisfactory, and it comes ill from a firm like I.C.I., which always sets out to be a leader in good public relations and has good factory conditions, that it should be so tough over a matter concerning the public interest. I beg the Treasury to look into this very carefully and to see if it can bring about a situation which will satisfy the Public Accounts Committee and the public.
§ 6.42 p.m.
§ Mr. Gordon Walker (Smethwick)
I join those who have thanked the hon. Member for Dover (Mr. Arbuthnot) for the admirable way in which he opened the debate and the very fair, courageous and appropriate speech which he made for this special kind of debate. This is an unusual occasion because the two parties are not ranged against one another. The debate was opened by one back bencher and will in effect be closed by another. The purpose of it is to sup- 1566 port the great work which the Public Accounts Committee does.
Unlike my hon. Friend the Member for Bishop Auckland (Mr. Boyden), I have not been a long student of the Public Accounts Committee, to my regret, and I must admit, with some shame, that until this debate I had never really read its Report and had not appreciated how much we owe to the 15 hon. Members who, on our behalf, work so devotedly and selflessly on it, almost always reaching unanimous decisions. On this occasion, the Committee had no less than 29 meetings and asked 4,818 questions. It probed things large and small, as the hon. Member for North Angus and Mearns (Sir C. Thornton-Kemsley) said.
I have been much impressed by the clear evidence that the Committee's work has a great effect on the action, efficiency and economy of Departments of State. In this day and age, it is impossible for Parliament as a whole to carry out properly its traditional, age-old and honourable work of watching the public purse. It has to be done on our behalf by the hon. Members who form this Committee, and I am sure that all of us, regardless of party, are extremely grateful to them for what they have done.
We have discussed various matters, some of them small, as is proper. Some of the things which attracted my attention when reading the Reports for the first time and many of the questions asked are very illuminating because they are not referred back to in the Reports. They are referred to only if they disclose something to which attention should be drawn. Things like the plaster which did not stick, and the bankrupt butcher, I found fascinating as a real example of the way in which we keep an eye on how Ministers spend our money.
When it came to the big things, most hon. Members today spoke about drug prices. My hon. Friend the Member for St. Pancras, North (Mr. K. Robinson) made a quiet but trenchantly argued speech which was, I thought, devastating in its logic. It was backed up and broadened by speeches from other of my hon. Friends, including the hon. Members for Stoke-on-Trent, Central (Dr. Stross), Willesden, West (Mr. Pavitt) and Bishop Auckland.
1567 I want to turn to what I regard as an equally important issue, which has been hardly mentioned at all, except by the hon. Member for Dover, and I agreed with everything that he said about it. I refer to certain aspects of the activities of the Ministry of Aviation. It is clear, and fair to say, that the Ministry of Aviation comes out worst of all the Departments of State which came under the scrutiny of this year's Public Accounts Committee. It has shown itself to be defective in the control of expenditure over a fairly wide and worrying range of things. A number of defects were shown.
It is clear—and I am sorry that the Treasury Minute did not fully support this, although it went a long way towards doing so—that it is important to have better checks on sub-contractors. We cannot rely solely on the main contractor because, as the Committee says, his interests are not sufficiently engaged to secure what the Ministry hoped would result from its method. The Treasury Minute supports the Public Accounts Committee in this, and I am pleased about that.
It is desirable to put some time factor into these contracts and to attach a penalty to them. This is extremely important, and I am sorry that the Treasury Minute does not altogether go along with the Committee on it. I trust that next year and, if necessary, the year after the Committee will concentrate on this, because it is important.
Blue Steel is largely past history. I understand that it is in delivery to the Royal Air Force. I do not know whether the Financial Secretary can tell us what the development cost was by the time it came into operation. I know that we are not allowed to know the production cost after it has become an operative weapon, but did the development cost go above the £60 million to which it had risen after the first estimate of only £12½ million?
My main interest is in the wireless set about which the hon. Member for Dover spoke. This Report is the most blistering indictment of a Department that I have ever read in an official and serious Report—I do not mean in the Daily Mirror, something like that. The facts of this matter are extraordinary. Eight firms 1568 were asked to put in tenders. The contract was awarded, as the Report says in paragraph 63, to the firm which quoted the highest price for development and the second highest overall price.
This was firm A, which is generally understood to be Plessey; it is now, I think, an open secret. Later, and after the other firms' tenders had been rejected, the price was reduced by 20 per cent., after the others were out of the field. Even then the Plessey price was considerably higher than that contained in several of the other tenders. Plessey also gave a later delivery date than any of its competitors.
I have formed the overwhelming impression, from reading the Report very carefully, that the Ministry was determined to award this contract to Plessey. I do not say that this is true, but the impressions which fair-minded men get are very important, almost as important as the intent. The impression was that there was a determination from very early on, if not from the beginning, to award this contract to Plessey.
The evidence for that is that the Ministry went on previous experience which was not, so to speak, borne on the face of the tenders—previous experience of the firms which they asked to tender and which was, in the end, largely used to rule out five of the six firms which were asked to tender. It therefore went on considerations extraneous to the contracts and also on the technical appreciations of each firm although it did not make it mandatory on the firms to include a technical appreciation when they tendered.
Finally, the main factor in the decision was the Ministry's own decision about how long it would take each firm to make the weapon. It did not make it mandatory on them to produce proper evidence of that. This was so extraordinary that the hon. Member for Dover, in Question No. 2962, felt himself compelled to go as far as to ask:In view of the nation-famous and, indeed, world-famous names of the firms concerned"—that is, the firms which lost the contract—are you completely satisfied in your own mind that no question of dishonesty has taken place in the awarding of this contract?In fact, no allegation of dishonesty is made, or was intended to be made, by 1569 the hon. Gentleman, but the fact that he was so amazed by what had happened that he had even to consider this possible explanation shows how extraordinary was this procedure. I would say that, looking at the facts, one has a choice either of saying that there was dishonesty at work, or that there was very grave incompetence. The Public Accounts Committee comes down, of course, in favour of the second explanation, that there was very grave incompetence. It uses extremely strong language. In paragraph 67, the Report flatly says that the Minister used "faulty procedure". This is very strong language to use. In paragraph 69, it states:…in this case competitive tendering proved to be a farce.These are words not lightly used in public documents.
The Report raises directly one question which has much concerned me and other hon. Members lately. It throws some light upon and raises certain aspects of the question of how far civil Servants, if not Ministers, in Departments like the Ministry of Aviation ought to go into private industry before the lapse of a certain period after they leave their official employment.
The reason I say this is that the Ministry of Aviation, in evidence and in the answers which it gave to certain questions, and the Treasury Minute, assumed—and I think, so does the Public Accounts Committee—that a wide element of discretion must be allowed in the Ministries concerned—in this case the Ministry of Civil Aviation—in awarding contracts. For example, especially with complicated developments like wireless sets and new weapons, one cannot reduce the thing solely to price, and, therefore, there must be a wide element of discretion in the awarding of the final very profitable contract. If this is so, and I think that it is inescapably so, it is absolutely essential that complete impartiality shall be seen to have been observed all through this by those who make public decisions on our behalf and are answerable to us.
This appearance of impartiality, as well as the reality of impartiality, must not be retrospectively impugned by the action of those who, on our behalf and under our control, take these decisions. 1570 If people who have to take, or share in taking, these decisions, which bring great rewards to some companies and deprive others of those rewards, are seen publicly to be taking immediately after they leave their public office positions of trust, importance and responsibility in one or other of these companies, this must throw some doubt on the appearance of the impartiality of those people. That is the first reason. The Reports show that that is now an inescapable conclusion, because the factor of discretion is built into our present method of placing orders for developing weapons and unknown things of which there has been no previous experience.
Even more important, as the Report of the Public Accounts Committee makes absolutely clear, is that Departments of State, like the one that we are discussing, must acquire an intimate knowledge of many firms and their inside working. This is the only way in which one can make the whole contract system work. For instance, Question No. 2758, put by my right hon. Friend the Member for Huron (Mr. H. Wilson), asked about the facilities that could be demanded of firms to make sure that their costing was right and all that sort of thing.
The answer which, I think, is proper and night, but which leads to grave conclusions, was that these facilities…include the access to the works of those who enter into contracts, the opportunity to inspect the books of the firms with which we have entered into contracts, our own accountants, technical costs officers and the like, following up these opportunities. In the case of the larger contracts we are establishing our own technical staff in the works to keep oversight over the project.That seems to be necessary. I do not see how one can check costs and all the rest of it without doing that, but if one does that it means that officials get a knowledge of firms and their inner working Which would be of the greatest possible benefit to their competitors. Then, if, having got the knowledge of a number of these firms, they serve in one of them immediately after leaving office, this carries with it an improper knowledge of the competitors of that firm which they have acquired only because they were public servants. This seems to me an extremely important factor in terms of fair competition between firm 1571 and firm. Leaving alone the public aspect of this matter, this seems to me to be wrong. This goes over and above any advantage which a firm might get because someone it employed knew what the future plans of the Department over a year or two would be.
Looking at all these things, I think that one of the conclusions we have to draw from the Report is this. Just because relations between Government and industry are now growing more and more intimate—they must grow more and more intimate, as we have seen, one cannot get the cost accounting and all the rest unless there is interpenetration between representatives of the Government, the Civil Service and business—it is more important than it has ever been before to draw the line clearly where we stop the people who have acquired this sort of knowledge as agents on behalf of the State exercising what are naturally the rights of other people, namely, to go wherever they like in private employment.
This raises very grave matters and I think that this Report furnishes evidence enough by itself, without further considerations, of the need for a very thorough inquiry—maybe by a Joint Select Committee, I do not know—into the whole difficult problem of what kind of civil employment it is proper for Ministers, for high civil servants and for Service officers acting in Departments of State like civil servants, to take up and after what interval. I do not think that we can leave this where it now is.
One thing that struck me in reading this very valuable Report is that the Public Accounts Committee naturally addresses itself to accounting officers. As the hon. Member for Folkestone and Hythe (Mr. Costain) pointed out, accounting officers are curious creatures. They have two hats. Under one they are responsible to the Public Accounts Committee, and under the other are responsible to Ministers and, therefore, directly to us. This is a very important thing. We must never forget, as one tends to in reading this Report, because it is all in terms of Civil Service officials answering questions, that behind all this lies ministerial responsibility.
When the Public Accounts Committee passes very strong remarks on a Department and we endorse it, in effect, by 1572 taking note of this Report, we—and we must never forget this—are passing judgment on what may be a set of Ministers over a period who are responsible for all the things that happen in their Departments, and particularly the big things—faulty procedures and systems that reduce the purpose of the system to a farce. Ministers themselves are responsible for things of that kind.
I should like to finish as I began, by saying that these are extremely valuable Reports. I know that I speak for hon. Members on both sides of the House when I say how grateful we are to the Committee and to its Chairman, my right hon. Friend the Member for Huyton (Mr. H. Wilson), for the extraordinarily good work that they do year by year, and the extraordinarily good work they have done in this particular year in the Reports which are now before us.
§ 7.10 p.m.
§ Sir George Benson (Chesterfield)
Two questions have been asked in the debate to which I think I can give the answer. The first is the question of the appointment of the Comptroller and Auditor General. His is a Crown appointment. It is an appointment by Royal Warrant and he is dismissable only by Resolution of both Houses of Parliament. The idea of this limitation on his dismissal is to make sure that he is entirely independent of everybody but Parliament.
I have been a member of the Public Accounts Committee for over thirty years and I have seen some remarkable changes. When I first became a member our Parliamentary expenditure was about £800 million a year and it was repetitive. Year after year the same amounts were spent on the same things by the same Departments. Our whole activity as a Public Accounts Committee was to improve little technical points of accountancy and procedure.
In 1930–31, my first year on the Committee, the Report ran to 21 sections and it was critical of four Departments. Last year our expenditure had jumped from £800 million to over £6,000 million, with large swings in expenditure, and instead of 24 sections of criticism we had 182. We were far more critical in our attitude to the Departments last year than we were when I first became 1573 a member. We were concerned not so much with technical points as with the much more important matter of how efficient was the administration of the Departments.
I am glad to say that for many years the Public Accounts Committee has issued unanimous Reports. That means that the Opposition offered valid and serious criticism and the Government members of the Committee were not prepared to condone mistakes by their own Government. I admit that on occasions unanimity has been rather difficult to obtain. I remember one occasion when I was Chairman when I sat up until after midnight wrestling with two members of the Conservative Party who wanted to slam their own Government more severely that I thought necessary. The two hon. Members are sitting opposite now.
I think that that is a good example of the really objective approach which the Public Accounts Committee has developed over many years. This unanimity—and we are a unanimous Committee—has been helped very largely by the stability of the membership of the Committee. The average service of the six senior members is fourteen years each, which is very good. During those fourteen years we have learned to work together as a team.
Last year, during our debate, the then hon. Member for Dorset, South remarked that Civil Estimates were a good deal higher than they were some years ago. That is perfectly true, but that is not something that can be put at the door of the Public Accounts Committee. The people who decide the height of the Civil Estimates are the Members of the House of Commons as a whole and not the Public Accounts Committee. It was a misconceived criticism.
Moreover, it is not the function of the Public Accounts Committee to curtail expenditure. Let that be fully understood. The curtailment and limitation of expenditure rests with the House of Commons. What we on the Committee are concerned with is to see that it is spent in accordance with the instructions of the House of Commons. Our activities are always a post-mortem on the expenditure of the previous year. We have two duties to fulfil. The first is to see brat expenditure is strictly in 1574 accordance with the intention of Parliament. The second is to inquire whether it has been efficient and economical.
Last year an hon. Member whom I will not name said that our Report was "a sorry record of human error, failure and mismanagement over a large field". Of course it was. That is what we are there for. We have a Comptroller and Auditor General who has a staff of 500 accountants working steadily throughout the year inside the Departments, reading their correspondence, poking their noses into every conceivable file, solely for the purpose of finding out, first, whether the expenditure has been as agreed by Parliament, and, secondly, whether it has been managed efficiently.
When we look at the Report which they succeed in producing and realise what a small fraction of the £6,000 million comes under their criticism, I think that it will be agreed that we have a very fine account of the efficiency of our Departments. Where a Department is not criticised, that does not mean that it has been neglected. It means that there is nothing to criticise, and the great majority of our Departments are not criticised. Looking back over the many years I have been a member of the Committee, I still find my admiration for the integrity, the efficiency and the ability of our civil servants growing year by year.
§ 7.19 p.m.
§ The Financial Secretary to the Treasury (Mr. Anthony Barber)
As my hon. Friend the Member for Dover (Mr. Arbuthnot) reminded the House in his opening speech, this is now the third annual occasion on which we have discussed the Reports of the Public Accounts Committee, under the arrangements made by my right hon. Friend the First Secretary of State for giving the House more opportunities for debating the control of public expenditure.
First, I should like to congratulate the right hon. Member for Huyton (Mr. H. Wilson) on becoming once again Chairman of the Public Accounts Committee. I understood that he had another engagement this evening to which he had to go, but in view of the way the debate has gone I am delighted to see that, after all, he has been able to be with us.
§ Mr. Barber
No doubt to some extent because of the weather we shall all be going home a little earlier this evening.
There are not many occasions on which an Amendment can be moved with equal appropriateness either by an hon. Member from the Opposition or by one of my hon. Friends. I was glad that on this occasion it fell to my hon. Friend the Member for Dover (Mr. Arbuthnot) to carry out this duty. It is a just recognition of his own conscientious contribution to the work of the Committee. In due course I shall be referring to some of the matters that he raised, but first I want to say that I agree with a great deal of what he has said, especially about the relationship between the Public Accounts Committee and the Treasury.
In carrying out its task the Committee has always adopted a dispassionate and bi-partisan approach, and it is this aspect, perhaps more than anything else, which gives the Committee and its Reports authority and weight. I am glad that, notwithstanding some fairly pungent comments—some of which I shall shortly refer, to—the debate has been thoughtful and constructive. There was one exception, to which I shall also refer.
The way in which these debates are conducted is important for two reasons. First, a party political approach is quite incompatible with the way in which the Public Accounts Committee carries out its work. It concentrates on the Reports of the Comptroller and Auditor General. By lengthy and painstaking examination, some of which has been referred to this afternoon—the examination of accounting, officers and departments, not forgetting the Treasury—the Committee seeks the truth as it sees it.
The second reason is that one of the main objectives of the Committee nowadays is to pursue value for money—and that is not a party matter. No doubt there may be differences of opinion between the two sides of the House as to the optimum pattern of public spending, but we are all agreed that what we want to do is to get value for money. Nowadays it is trite to talk about the enormous range and cost of public activities, but what is perhaps not so keenly appreciated 1576 is that the running of a large Government Department poses many of the problems, often in acute form, which beset other large organisations, whether private enterprise or public enterprise. The acid test of the private sector—the ability to make a profit and to stay in business—is absent, and it is right that we should therefore take special care and take every precaution to ensure that we get value for money in the public sector.
Mr. H. Wilson
Something which the hon. Gentleman said might be capable of misunderstanding. I am sure that he did not mean to say it. He said that the Committee mainly addresses itself to the Reports of the Comptroller and Auditor General. I hope that he will not leave out of account the many occasions in which the initiative is taken by the Committee itself, and when the Comptroller and Auditor General, usually at the request of the Committee, does some further investigation. This afternoon the hon. Member for Dover (Mr. Arbuthnot) made it quite clear that apart from those occasions where the Comptroller and Auditor General's Reports form the basis of investigations, many quite important investigations are carried out on the initiative of the Committee, and not least in connection with accounts in respect of which there has been no Vote of the House. I am sure that the hon. Member does not want the point to be misunderstood.
§ Mr. Barber
I am grateful to the right hon. Gentleman. I certainly did not mean to imply that. I recognise that in many cases the initiative comes from the Committee itself.
I was saying that because of the absence of the profit motive in the public sector we have to take special care to replace it by other tests of performance. We have to try to ensure that the dispatch of public business, day by day, is as streamlined and efficient as that of a successful commercial enterprise. This must be achieved with full Parliamentary accountability.
I am talking about management. Management is not a very precise concept, but its meaning is well understood. Apart from decisions of policy, it covers pretty well everything in the running of a Government Department, and there are financial implications, direct or indirect, 1577 in most decisions of management. We all want to secure the greatest efficiency in the running of the Government's business. Indeed, the recent reorganisation in the Treasury was directed to this end.
The Public Accounts Committee, together with the Estimates Committee, is the Parliamentary instrument for the same purpose. There can be no doubt that the Plowden Group was right in taking the view that external criticism of the kind that we have been discussing today is an essential spur to improvement. In this connection, I was interested to see the recent Report of the Canadian Royal Commission on Government Organisation. The Commissioners carried out a most detailed and exhaustive investigation into the organisation and methods of Canadian Government Departments, and made many recommendations about management which are very closely in line with our own thinking.
They, too, want to see more delegation of responsibility. As the House knows, this is precisely our own view. Incidentally, they were struck, too, with the great variety of public service occupation. After giving a number of striking illustrations of the extent of public services in Canada they said:An element of mystery is created by the list of such intriguing occupations as insect sampling and rearing aides, negative operators, receivers of wrecks, scope watchers, and strippers and layouters.We have our list of intriguing occupations. For instance, there is the Experimental Baker at the War Office, the Assistant for Drums at the Queen Victoria School, an animal technician, a deer stalker, and a bees officer (seasonal). I am not sure what our friends abroad would make of these occupations, although I heard the other day that my right hon. Friend who leads the United Kingdom delegation in the Brussels negotiations is known affectionately by the other representatives of the Six as "Le Lord du Sceau Privé".
The formal terms of reference of the Public Accounts Committee—to examine such of the accounts laid before the House as it sees fit, and to report on them to the Housemay seem rather narrow and technical. But it is clear from the Reports that they enable the Committee to delve deeply into all aspects of Departmental financial management and control. They may ex- 1578 amine certain projects involving the spending of many millions of pounds, or look at Departmental practices in a quite general way, as, for example, when they consider the calculation and charging of overhead costs, or the presentation, in the form of commercial accounts, of a Department's trading policies and results.
But accounts are not ends in themselves. They seem to me to serve three distinct purposes. First, they provide information to Parliament and the public. Secondly, they help to ensure financial propriety. Thirdly, they are important aids to management. The Public Accounts Committee takes an interest in all three of these aspects; indeed, the Report now before the House, which we have been considering, contains examples of all three. There are, first, the recommendations, many of which have been accepted—one hon. Member said that he thought that of these Reports more of the recommendations of the Public Accounts Committee had been accepted than ever before—about the presentation of the financial results of the Atomic Energy Authority's various activities. As the Reports and the comments in the Treasury Minute show, the form of the accounts is intimately bound up with the nature of the different functions and the way in which different kinds of expenditure are recovered.
Secondly, there are matters of "propriety". What is usually in question here is whether Departments have spent their grants in accordance with Parliamentary authority, in specific legislation or in the Estimates. Here again, the Committee has brought to light one or two cases in which, through inadvertence rather than disregard of the constitutional proprieties, mistakes have undoubtedly been made. The recovery arrangements for the loans to claimants to Egyptian compensation money, and the Herring Board grants, are two examples.
It is fair to say that these questions of propriety formerly occupied most of the Committee's time and attention, but it is now primarily on financial management that the Committee concentrates, and I am sure that this is right. However, it has one effect which strikes me as being a little unfortunate. Some of the investigations of the Committee are based on the Reports of the Comptroller 1579 and Auditor-General, and also on the various appropriation and other accounts. These Reports, notwithstanding the delightfully dispassionate and lucid terms in which they are written, naturally carry certain critical implications, which are clear enough to the discerning reader and may attract some publicity. The Committee examines, and later on publishes its own Report, which, as I think we can see from reading it, is likely to contain criticisms which are rather more explicit.
It is not until the third stage, in which the Treasury Minute is issued, that there is any opportunity of reply by Departments and the Treasury, so that the Executive suffers, as it were, two well-intentioned assaults before it has a chance to reply. I do not think that there is any easy way out of this; nor do I want to make too much of it, but I hope that hon. Members will at least reserve judgment until they have had the opportunity to read both sides.
It is not possible for me to answer all the points which have been raised in this debate. One has only to look at the vast range of subjects covered by the Third Report of the Committee to realise that this is not so. I should like to express my appreciation to my hon. Friend the Member for North Angus and Mearns (Sir C. Thornton-Kemsley) for drawing the attention of the House to certain matters of comparatively minor importance—I stress "comparatively"—which have not received quite the same blare of publicity as some others.
The work of the Public Accounts Committee is not confined to big issues, and considerable savings have resulted from the advice of the Committee on these other smaller matters. I was very interested in the speech of my hon. Friend the Member for Folkestone and Hythe (Mr. Costain), and I agree with most of what he said. I was particularly pleased to hear his compliment to the Permanent Secretaries who appeared before the Public Accounts Committee.
It is, of course, the Committee's job to be critical, where it considers it to be justified, and this is all to the good, and I am sure that it is understood and accepted with good grace. I very much agree that the opportunity which the Committee's examinations provide for 1580 direct contacts with Permanent Secretaries and other senior officials is much to be welcomed. It is one of the few ways in which Members of the House of Commons can acquire a detailed insight into the problems of Departmental administration and management.
If I may now turn to a matter which was mentioned both by the right hon. Member for Smethwick (Mr. Gordon Walker) and by my hon. Friend the Member for Dover, it is that concerning research and development contracts. This is a very important subject, and, delving back into previous Reports of the Public Accounts Committee, we can see that it is one which is very familiar to the Committee and the House. It is inevitable, and indeed right, that it should have attracted attention and some criticism. These contracts have all the necessary ingredients to catch the eye of the Comptroller and Auditor General and to be dissected by the Public Accounts Committee.
In the first place, of course, most of these contracts are "cost-plus", because over much of the field this is inescapable from the very nature of development. Secondly, there are sometimes very large increases over the original tentative estimates, and, thirdly, very large sums are often involved in the development of military equipment which itself is frequently the subject of criticism.
Perhaps I should say at the outset that my right hon. Friend, and needless to say the Treasury, are determined to do everything possible to ensure that the estimating and control of these contracts is made as taut and efficient as possible in the face of what I am sure any clear-minded Member of the House would recognise as very great difficulties. I should like briefly to remind the House of the main problems and how we try to deal with them.
Two years ago, my right hon. Friend the Minister of Education, when he was Financial Secretary to the Treasury, said this:What the Ministry of Aviation is now trying to do is to make sure about each step before going on to the next step. This starts with a precise definition of objectives, and the process goes on through feasibility studies and a fuller scale design study, from which emerges a detailed costing programme for the whole development."—[OFFICIAL REPORT, 19th December, 1960; Vol. 632, c. 957.]1581 That summarises in simple terms an extremely complicated process, in which, admittedly, there is ample scope for matters to get out of hand unless the arrangements for control within Departments and their arrangements with contractors are absolutely watertight.
The general approach to control, providing for the reassessment of a project at defined stages, was confirmed by the Zuckerman Committee on the Management and Control of Research and Development, which reported to the Minister for Science in July of last year. It recommended that all defence projects involving the development of weapon systems should normally be processed through the stages of operational requirements, feasibility study, a project or design study, and, finally, development itself. A further recommendation by that Committee, that project studies should be carried out for all major projects before a development contract is placed, is a cardinal principle of the Department's system of control.
The Public Accounts Committee concentrated last Session on two aspects of this complex of problems—design or project studies and the product of such studies, that is, technical programmes. As regards the former, it stressed the importance of obtaining adequate competition when these studies are placed. I entirely agree with my hon. Friend the Member for Dover that wherever it is possible competition is one of the most valuable means of obtaining alternative designs and of weighing their relative technical merits against their prices.
As I am sure my hon. Friend would be the first to agree, in this highly specialised field competition is not always practicable. For example, if an existing equipment is to be further developed, it is generally best to go to the firm which carried out the earlier work. Or there may be only one firm with the necessary expertise or potential, or, if there is more than one, some may be devoting their best efforts to other work. Similarly, as regards technical programmes, to which the Committee devoted some attention, because of the very nature of development work. There is a limit to the extent to which firms can be contractually bound to keep to the stipulated programme dates. I recognise the desirability of doing this, 1582 and it seems to me to be obvious common-sense if it can be done.
In many cases, the contractors will seldom be free agents, because of the need for the Ministry—in this case, the Ministry of Aviation—to keep a close check and watch on their work, and because some setbacks and delays are often inevitable in development work and may arise for reasons quite outside the control of the contractor. Nevertheless, if his performance is unsatisfactory, and if it can be shown that this is within his own control, the Ministry's practice is to negotiate a reduced profit. A further factor is that a number of different firms may be concerned with the development of different parts of a major weapon system, and each is to some extent dependent on the others for the fulfilment of their own forecasts.
I was asked specifically to turn to another subject by my hon. Friend the Member for Dover, who referred to the affairs of Messrs. Bailey (Malta) Limited. I am afraid that in this I can only remind the House that the report of the independent investigator has been received by my right hon. Friend, who is now considering it, and I understand that he will make a statement to the House as soon as possible. I have no doubt that before then he will bear in mind what my hon. Friend has said.
The subject with which, I suppose, throughout this debate the House has been concerned more than any other is that of drugs. It was referred to at length by the hon. Member for St. Pancras, North (Mr. K. Robinson) by my hon. Friend the Member for Dover, and my hon. Friend the Member for Barons Court (Mr. Compton Carr) and by several others who have spoken. This, again, is not a subject which is new, either to the Public Accounts Committee or to the House of Commons. In the Committee's last three Reports and in both the previous debates, a good deal of attention and not a little criticism has been given to the arrangements for keeping the drug bill down and also to keeping the price of individual drugs within reasonable limits.
All this time—and, indeed, before—the Ministry of Health has been negotiating with the drug firms on the basis of the voluntary price regulation scheme. I have 1583 no doubt that the hon. Member for St. Pancras, North is absolutely right on one point. Many of the Committee's criticisms and the observations of hon. Members during our debates in this House have affected the course of the negotiations and, from the point of view of the Exchequer, have done so advantageously. I agree with the hon. Member on that.
Mr. H. Wilson
It is undoubtedly true that the Committee has played a big part in pressing the Ministry to take a different and less tolerant line on this expenditure. If the Minister is now lending his authority to what is a private view on my part—I do not know whether it is the view of the whole Committee—will he say what he thinks has been the total loss to the Exchequer by the fact that the Ministry did not act on its own initiative in cutting out avoidable expenditure but had to wait to be pushed year after year by the Committee and debates in this House before doing it? How many millions does the hon. Gentleman think have been lost in that way?
§ Mr. Barber
The right hon. Gentleman appears to misunderstand the point. I am suggesting that because, as we all know, in certain cases excessive prices have been charged, it must be a good thing for public opinion to be brought to bear on the whole subject and that this has been done most effectively by the Public Accounts Committee and by our debates in this House. I was merely agreeing with his hon. Friend in what, I thought, was in many ways a helpful and constructive speech.
The hon. Member for Stoke-on-Trent, Central (Dr. Stross) had an altercation with my hon. Friend the Member for Barons Court on the extent to which there is competition in the industry. I hesitate to get involved, but I understand that the manufacture and supply of drugs takes place in what the economists used to call conditions of monopolistic competition. I make no claim to be a professional economist, but I take that to mean that elements of both competition and monopoly are present. The whole House would, I am sure, agree that undoubtedly there is strong competition between firms, both British and foreign, who devote intensive efforts to research with the object of promoting better and more effective 1584 preparations and thereby, they hope also, more profitable preparations. At the same time, however, each proprietary preparation which may be prescribed has its special characteristics and is not, or is not always, freely interchangeable with other preparations. Many new products are patented.
The National Health Service is the main home buyer, either through the chemist or through the hospital. We depend for these supplies, as we must, on private industry, which cannot survive without adequate profits over the business as a whole. The duty of the Government is to ensure that this situation is not exploited to the taxpayers' disadvantage.
One method of approach would have been to seek detailed information on costs and profits to justify the price of every drug prescribed in any quantity under the National Health Service and to relate this information to predetermined criteria for judging what is reasonable cost and what is reasonable profit. That would have been an enormous task, even if appropriate criteria were ready to hand, which they were not. The approach has, therefore, been different.
The voluntary price regulation scheme, which was discussed at length by the hon. Member for St. Pancras, North, has been agreed with the industry. Under it, prices to chemists are in general accepted without investigation of costs and profits if they meet certain readily identifiable objective criteria, one of which, to which the hon. Member for St. Pancras, North referred, is that those prices are no higher than export prices. The hon. Member pointed out that the scheme was first introduced in 1957 and was re-negotiated only a couple of years ago, when, in the light of the experience in the initial three-year period, the criteria were considerably tightened up and a new proviso was inserted enabling the Government to challenge the prices of patented preparations with a big National Health Service usage even when they met the export criteria.
The scheme has produced many price reductions. In 1961, reductions were estimated to result in savings of about £1 million a year and further savings in 1962 are estimated to save another £1 million. Incidentally, one of the reductions taking effect this year is of 1585 £130,000 a year for a drug manufactured by one of the Swiss companies, to which reference is made in the Committee's Report.
The Government do not, however, claim that as a result of the voluntary price regulation scheme, all drug prices are fair and reasonable. During the currency of the initial scheme, the Government themselves drew attention to published figures of profit on capital employed, which seemed extremely high by any standards. These figures were relevant to the revision of the scheme which was undertaken in 1960.
It is also relevant that, when they are themselves the purchasers, the Government have been able to secure patented drugs for hospitals alt markedly lower prices from suppliers other than the patentees. Since most of these drugs come within the proviso to the new scheme, enabling the Government to challenge prices for frequently-used patented products, they are a factor in the negotiations under the scheme.
In that connection, my hon. Friend the Member for Dover suggested that the Ministry should also investigate the prices of and the profits on the drugs supplied under the provisions of the Patents Act. I am not sure whether that would be appropriate. When the Government invite tenders for the supply of any products, it depends upon competition among suppliers to keep the price at a reasonable level. I am doubtful whether we could combine this normal approach with the special investigations into the costs and profits which are sometimes necessary when open tendering is impracticable.
I can, however, assure the Committee on that point. The hon. Member for St. Pancras, North quoted certain instances when, in his view, there had been undue delay in negotiations. I agree that on the face of it, some of them appear to have been lengthy. I assure him, however, having been in touch with my right hon. Friend the Minister of Health concerning the matter, that despite the difficulties, my right hon. Friend will do everything he possibly can to ensure that there is no undue delay in negotiations.
Mr. H. Wilson
The hon. Gentleman must know, because the Committee reported on this aspect, that in some cases 1586 one of the main factors in the delay, about which the Committee reported strongly last year, was the refusal of the firms concerned to give information when it was requested. This is intolerable. Having had experience of price control, we got the figure by compulsory powers, if necessary, and would not agree to a price being fixed until we had the figures.
Is the hon. Gentleman satisfied that the Minister has all the powers which are necessary to enable him to get the figures? There was argument about this last year and the hon. Gentleman's predecessor had to qualify the answer which he gave in the debate. Secondly, does the Minister intend to use these powers? Will he undertake that there will be no delay due to the Minister's refusal to get the figures which he needs far the purpose of negotiation?
§ Mr. Barber
I am not an expert on this matter, but I understand that the compulsory powers are certainly in existence and are available for use to get the principal information which is necessary to be able to form a judgment in these matters. I assure the right hon. Gentleman that the powers will certainly be used if need be. The right hon. Gentleman will recognise that the basis of the voluntary price regulation scheme, and indeed of the Government's relations with the industry generally, is one of voluntary negotiation. I am sure that the right hon. Gentleman will be the first to recognise this. If we can obtain the information without using the powers, it is preferable, that we should do so. I can certainly give him the assurance that, if necessary, the powers will be used.
The point was that last year I received exactly the same answer from the then Financial Secretary, who told us that he was satisfied that the Government had the powers. A few days later we had to arrange a special Question and Written Answer so that he could apologise for the information he gave to the House and point out that the Government had not the powers. That is why I asked the hon. Gentleman whether the Government now have the powers.
§ Mr. Barber
I have simply said—I can only repeat what I said a few moments ago to the right hon. Gentleman—that, as I understand the position, we have 1587 compulsory powers to obtain the sort of information which is necessary to judge fairly in these matters. I was giving the right hon. Gentleman the assurance for which he asked that, if need be, we would use them. I thought that my hon. Friend the Member for Dover who, after all, has been universally applauded for his opening speech, was on a very good point when he stressed the desirability of good relations between the Ministry of Health and the industry. All that I am saying is that, while we will not hesitate to use these powers if necessary, it is obviously better that we should not do so if possible.
I turn to the question of advertising costs, which was raised by the hon. Member for St. Pancras, North and referred to by my hon. Friends the Members for Barons Court and Dover and others. I want to leave the House in no doubt on one point. The Government are concerned about the extent of the resources which some firms, but by no means all, have hitherto seen fit to lay out in this way. I entirely agree with my hon. Friend the Member for Barons Court that advertising plays a perfectly legitimate and important part in the economy. I am sure that he will agree that this is a field in which high-pressure sales promotion is out of place and distasteful.
It might be suggested that one way of dealing with the problem would be for the Government to lay down just how much individual firms might spend on advertising. This approach is superficially attractive, but I do not think that it would be the right one and I was pleased to hear the hon. Member for St. Pancras, North also say that no Minister could dictate what a firm spends on promotional expenditure. After all, it is one thing to form an impression that advertising is excessive, but it is another to establish the criteria which could be used in the hard detail of negotiating to tell whether any particular expenditure was acceptable. We must always remember, again, that the scheme which the Government are operating is a voluntary one. To tell firms how much money they might spend on advertising would be incompatible with their right to run their business in the way in which they think fit.
§ Mr. K. Robinson
I went on to say that I thought that this did not mean that the National Health Service need pay for excessive advertising.
§ Mr. Barber
I entirely agree with the hon. Gentleman. Indeed, I was just going on to say that what the Ministry of Health can do, and indeed does, is to bear the degree of sales promotion expenditure fully in mind when reaching settlements in negotiations on prices. This is an important factor which the Ministry quite rightly should take into account. Negotiation, after all, must be a matter of give and take, and negotiators must have discretion in deciding what terms to settle for. Where the Ministry considers that sales promotion costs are exceptionally high, it will be all the more determined to secure a reduction in price. This seems to me to be the common-sense approach.
Apart from the principles which guide the Ministry in negotiations, a further curb on excessive advertising is through the provision of information to doctors on the comparative costs and merits of different drugs. The Ministry issues the Prescriber's Journal to all general practitioners. I am told that it is clear from doctors' letters that many have found it of great use.
In conclusion on this point, I assure the House that we are at one with the Committee in its concern to ensure that expenditure on sales promotion is restrained. Here again, I feel that the observations of the Committee and what has been said today will strengthen our hand.
I want to say one word for the benefit of the hon. Member for Stoke-on-Trent, Central, in view of his great practical experience. He devoted most of his speech to the question whether there should be a change in the present system so as to permit chemists to provide drugs alternative to those prescribed where there is no essential difference between the two. I do not think that the hon. Gentleman would expect a mere Financial Secretary to give him an answer today on this point, but I am sure that my right hon. Friend the Minister of Health will take note of what he said.
The hon. Member for St. Pancras, North asked me a number of specific questions about Section 46 of the Patents 1589 Act, 1949. It is not within my personal knowledge, but I have done what I can to obtain the information for him. This is the answer to his first question about the contracts for the supply of five drugs to hospitals. He asked me whether those contracts were satisfactorily performed. The answer is, "Yes".
The second question which he asked concerned the quality of the drugs. Here again, I am told that the quality has been satisfactory in all respects. Thirdly, I should inform him that new contracts have been awarded for the same five drugs, in each case following competitive tenders. The hon. Gentleman also asked a question about the action by a United States company against the Minister of Health arising under Section 46 of the Patents Act, 1949. I understand that this action is expected to be heard this month.
§ Mr. K. Robinson
I am grateful to the hon. Gentleman for obtaining those answers for me. There is one further question: if this operation has been regarded as successful, is it intended to expand it during the coming year and, if not, why not?
§ Mr. Barber
I should not like to say a great deal about the future. What I can say is that the reason why no further cases of drugs have been dealt with in this way in the past is simply that my right hon. Friend has not considered that circumstances have arisen which would justify it. Obviously, he has these powers. Here again, they are powers which are no doubt effective in terrorem as well as being effective in actual use.
I turn to a matter touched upon by the right hon. Member for Smethwick namely the design and development contract for a new wireless set, which the Committee examined in great detail and on which it made some rather forthright criticisms. These criticisms were echoed by the right hon. Gentleman. Although the performance of this particular wireless set, which was urgently required for the infantry, was technically in advance of any earlier major Army radio equipment, its development did not or should not have presented such fearful problems as was the case, for example, with guided missiles. Moreover, the prospects of sub- 1590 stantial export orders for this wireless set seemed to be good so that the manufacturers would have an incentive to compete for the development contract.
In all these circumstances, the Ministry of Aviation considered that this was a good occasion on which to carry further its policy of seeking fixed-price or other incentive contracts for development work wherever it was possible to do so. This is just what the Committee of Public Accounts has been urging. It was therefore decided as a deliberate experiment to invite competitive tenders with the object of placing the contract at a fixed price. I should mention that this is the first occasion in recent years on which it has been decided to go out to competitive tender for an important development project in the field of communications. It was realised that difficulties might well arise, but it was thought that the potential advantages, including the gaining of valuable experience, justified this course.
This approach was entirely satisfactory to the Treasury, as I have no doubt that the intention behind it would have been to the Committee of Public Accounts. However, I will not conceal from the House that when later on we discovered that things had not turned out quite as planned we ourselves in the Treasury expressed some concern. Later the Committee of Public Accounts took up the matter and made its views known.
Then followed an extremely careful re-assessment by the Ministry of the whole case—the tendering process and the subsequent action which followed it. This is very much a matter for my right hon. Friend the Minister of Aviation. The Committee's comments go to the heart of the responsibilities of his Department for the fair, efficient and economical conduct of development contracts of this kind. I would not want to trespass on his territory, even if I were sufficiently familiar with the details of this sort of operation.
I say immediately that I fully accept that we in the Treasury have a responsibility to satisfy ourselves that the Departmental systems of control of these sort of contracts are sound. This is just one example of the Treasury's general functions in the field of management.
As to this particular case, everyone knows that the Government have to develop and produce a great variety of 1591 new equipment and do so in conditions of rapid technological advance and often working against time. This must involve careful and continuing assessment and reassessment of both the technical and the financial effects, and neither can be safely neglected. As the Treasury Minute says, we agree that invitations to tender should not be issued to firms whose tenders are likely to be rejected on extraneous grounds. This was one of the criticisms made by the right hon. Gentleman. I agree with my hon. Friend the Member for Dover that instructions to tenderers should be complete and precise and that the evaluation of their tenders should be on common criteria. This may all sound pretty obvious. In fact, it was not the intention to depart from these rules in this case. As regards the subsequent rejection of certain tenders, I understand that the necessity for this became clear only on examination of the tenders.
As regards the question of technical appreciations to which the right hon. Member for Smethwick referred, again we accept that if these are required it is better that their submission should be made mandatory rather than optional, as was the case here.
Perhaps I can just add this on this point. Competitive tendering does not normally lead to the award of the contract to one of the highest bidders. For obvious reasons, the contracts divisions of Departments responsible for heavy expenditure of this kind do not lightly accept such an outcome. I assure the House, and in particular the right hon. Member for Smethwick, that the lessons in this case have been learned and that the comments of the Committee of Public Accounts have had their effect.
When I first heard that the right hon. Member for Smethwick was to take part in this debate I am bound to say that it had not occurred to me that one of his objectives would be to use this occasion to continue the Opposition's campaign against retired Ministers and retired civil servants taking up jobs in industry and commerce. After all, no mention of this matter appears in any of the Reports of the Committee of Public Accounts which we are considering.
Mr. H. Wilson
The hon. Gentleman is quite wrong, because this question was taken up by the Committee. Naturally we hoped that there would be no serious point on it, but this was one of the points on which we took evidence. The evidence is included in the Report.
§ Mr. Barber
When talking about the Reports of these Committees most people understand that one is talking about the Reports without the evidence. At any rate, let me put it in this way. In what is termed the Report which I have here—the Third Report from the Committee of Public Accounts—the Committee did not see fit to make mention of this topic. That being so, I can only say that it seemed to me a little odd that the right hon. Gentleman did not do what I should have thought was normal, that is to say, give me notice that he proposed to devote quite a large part of his speech to dealing with this particular matter. Since he has raised it at some length, I must deal with it.
As regards ex-Ministers, it has already been established that there is not one tittle of evidence to support the suggestion that there was anything wrong. Indeed, my right hon. Friend the Prime Minister has already shown up the campaign for what it is, a wholly unwarranted personal attack. Now, having failed in their attack upon Ministers, the Opposition turn their attention to civil servants.
§ Mr. Gordon Walker
I am perfectly certain that there will be another occasion on which we can thoroughly thrash this matter out. It will not just be settled now between us. I was only giving a sort of first shot in the battle.
§ Mr. Barber
It was rather a long shot, and it was, of course, a shot which no other Member of the House of Commons considering this matter today chose to make or even refer to at all. It was only the right hon. Gentleman who did so.
§ Mr. Barber
Since the right hon. Gentleman made his point at some length, I think that I am entitled to reply.
Having failed so far as Ministers are concerned, the right hon. Gentleman now turns his attention to civil servants. Although he did not see fit to give me notice that he intended to do so, I think it right, since I have some responsibility, 1593 as Financial Secretary to the Treasury, for the Civil Service, to give him a reply.
What is the position? Specific and detailed rules are laid down about the types of case where consent is required before a civil servant can take a job in business. Listening to the right hon. Gentleman, one would think that all this was something new, something which had occurred only under the Conservative Government. It is, perhaps, significant that his hon. Friend the Member for Barnsley (Mr. Mason), in asking for a whole series of figures in a mass of Questions for Written Answer, dealt only with the period since the Conservative Government came into office. One would think that there was some quite different rule applicable during the period of the Labour Government.
In fact, the rules which are now being applied are identical to those which were being applied under the Labour Government. I put the question to the right hon. Gentleman the Member for Smethwick: did he object to the rules when he was a prominent member of the Labour Government? Or was the standard which is now thought by him to be so inappropriate quite satisfactory in Lord Attlee's day? The truth, of course, is that, the campaign against Ministers having failed to stick, the Opposition, for want of something better, are switching the attack to the Civil Service. I have no doubt that it will redound to the discredit of the right hon. Member for Smethwick.
I return now to the real purpose of the debate, which was to consider these three Reports from the Committee of Public Accounts. The right hon. Member for Huyton (Mr. H. Wilson) has on previous occasions described what he called the in terrorem function of the Committee. In refuting the idea that the Committee is concerned only with the past, with bolted horses—a point made also by my hon. Friend the Member for Dover—the right hon. Gentleman pointed out that most of the Committee's recommendations are good for the future as well as for the past, even though they arise on particular cases. With respect, I think that there is a great deal in this.
The examination carried out by the Public Accounts Committee and its 1594 criticisms are a constructive part of the machinery for securing efficiency in the public service. As the Treasury Minute shows, we do not agree with everything that the Committee says, but I can assure the House that the Departments and we in the Treasury take very much to heart what it says.
§ Question, That the words proposed to be left out stand part of the Question, put and negatived.
§ Proposed words there added.
§ Main Question, as amended, put and agreed to.
That this House takes note of the First, Second and Third Reports from the Committee of Public Accounts in the last Session of Parliament, and of the Special Report from the Committee of Public Accounts.
§ Committee Tomorrow.